Leading Australian express and freight transport group Toll Group today issued a profits warningthat sent shares down 16 per cent, sold an automotive business and said it is reviewing the future
of loss-making Japanese subsidiary Footwork Express.Toll announced that it was writing down the value of Footwork Express and several propertyassets, would sell its finished vehicle distribution business and downgraded its profitsexpectations for the full year ending on June 30, 2012.
The company said it now expected Footwork Express to make an operating loss of between A$5million and A$10 million this year due to extremely difficult market conditions in Japan eventhough the firm had reduced costs and improved productivity. Since no short-term improvement waslikely, Toll would write down the value of Footwork Express business by between A$146 million andA$166 million, to leave capital employed of between A$200 million and A$220 million. The groupadded that it is conducting “a full strategic review of its options for this business”, signallingthat these might include a sell-off of the company.
Toll also announced that it has finalised the sale of part of its automotive business inAustralia to PrixCar, a 50-50 joint venture company between Toll and K-Line Automotive, with apre-tax one-off gain for Toll of approximately A$47 million (after-tax gain of A$37m).
Commenting on the earnings outlook for the 2012 financial year, Toll Managing Director, BrianKruger said: “We have seen continued pressure from the soft retail sector in Australia affectingthe financial performance of our domestic businesses with an exposure to that sector, together withweakness in the global apparel sector impacting volumes and EBIT in Toll Global Forwarding. Inaddition, we have seen a deterioration in the performance of Footwork Express, and continued poorfinancial and operational performance in Toll Marine Logistics (part of Toll Global Resources),particularly in Asia, and significant margin pressures in the interstate linehaul and warehousingoperations of the Toll Refrigerated business (part of Toll Domestic Forwarding).”
The company now expects underlying EBIT, including associate earnings but excluding theone-off measures announced today, to end at between $400 million and $420 million in 2011-12,compared with EBIT of $436 million in 2010-11.
“We are taking a close look at underperforming businesses and are already undertakingstrategic reviews of Footwork Express, Toll Marine Logistics Asia and Toll Refrigerated,” Krugerstated.
“While the very challenging and volatile market conditions have slowed our progress incompleting the first stage of our strategy for Toll Global Forwarding, we continue to see this asan attractive sector in the long term and are committed to building a world class global forwardingbusiness. Despite the challenges of the external environment, the majority of our businesses havecontinued to perform well, providing a strong contribution to overall Group earnings,” he added.
In February, when the half-year results were announced, Kruger indicated that the companywould sell off underperforming non-core businesses and would focus more closely on profitability.In the six months ending December 31, 2011, Toll Group increased revenues by 4.7 per cent to A$4.4billion but operating profits fell 2.2 per cent to A$248.2 million. Net profits dropped 3.7 percent to A$157.9 million.
The group’s largest division, Toll Global Express, which represents about 25 per cent ofgroup revenues, increased sales by three per cent to A$1.13 billion in the first half of the2011-12 year. But its operating profits dropped back to A$94.2 million from A$111.5 million oneyear earlier. Footwork Express, the Japanese express subsidiary, saw half-year revenues drop 2 percent to A$377 million while its operating profit dropped 86 per cent to just A$3.4 million.
